Land of Opportunity and Challenges
The thousands of small-business owners who operate as franchisees for some of America’s largest corporations are closer to breaking what they say is a stranglehold on power long enjoyed by franchisers.
For the first time, and despite protests from franchisers, Republicans in Congress are backing a bill that would address the imbalance.
Partly in an attempt to head off the legislation, which they consider a threat to the future of franchising, the franchisers have come up with their first serious effort at self-regulation.
This summer, franchise business relationships were the subject of hearings on Capitol Hill.
“For the new millennium, the real question is going to be how involved is the government going to get in franchise business relationships,” said Susan P. Kezios, president of the American Franchisee Assn. in Chicago.
If her group has its way, the involvement will be in-depth. For six years, the association has worked to unite franchisees and boost their presence in Washington, where franchisers and their lobbyists have traditionally held sway.
Because of those efforts, Kezios is convinced that the franchise bill, which deals with issues such as encroachment, dealing in good faith and fiduciary duty, will pass this year.
“We are real close. We’re going to get this one over the goal post,” she says.
Not surprisingly, the franchiser community is hoping to block that kick.
“We are all just a whole lot better off if we have less government interference in these business relationships,” said James H. Amos Jr., president and chief executive of Mail Boxes Etc. of San Diego and vice chairman of the International Franchise Assn.
Amos, who oversees one of the fastest-growing franchise systems, doesn’t deny that there have been conflicts between franchisers and their franchisees in the past because of unwise business practices. Conflicts will never disappear, he said. But he noted that his company and more and more other major franchisers realize that an “absolute commitment to positive relationships” with franchisees is the core of a successful business.
“That is the real millennial shift, and it is happening,” said Amos, who pointed to once suffering chains such as Howard Johnson and A&W; that have rebounded after focusing on improving franchisee relationships.
There’s a lot at stake. According to Amos: Roughly half of every retail dollar in the United States is spent at a franchise outlet, and franchise companies and their franchisees do a trillion dollars worth of business a year.
The only federal agency now keeping tabs on the more than 1,000 franchisers is the Federal Trade Commission. Franchisers must file a disclosure document with the FTC before they can offer to sell franchises. The FTC is mainly concerned with the accuracy of claims made in the disclosures.
Unexamined and unregulated by any federal agency are the increasingly complex contracts drawn up by franchiser lawyers and the franchisers’ sometimes heavy-handed business practices. Franchisees want restrictions on, for instance, requirements that all supplies must be bought from the franchiser, even if the same goods are available for less elsewhere.
The fate of money sent to franchisers for advertising is also a sore spot for some franchisees. Many want a better accounting of where that money goes. And they want legislation that requires franchisers to act in good faith in dealing with franchisees and which imposes limited fiduciary duty on franchisers, who often handle accounting or payroll services for their franchisees.
“I just don’t want to sign away some of my rights in order to become a franchisee, and you do,” said Marshall Green, a Midas Muffler franchisee in Southern California for almost 30 years. Green, who has three Midas shops, was a delegate at the 1995 White House Conference on Small Business, which named franchisee concerns a top priority for Congress.
“Franchisers play the anti-government card, [but] we are ... just asking for the same protections that everybody else in business has,” says Green.
The Small Business Franchise Act of 1998, introduced in the final days of the 105th Congress with bipartisan support, was meant to address those concerns. No action was taken on HR 4841 before the session ended, but co-sponsor Rep. Howard Coble (R-N.C.) cq plans to reintroduce the bill this session. this year after the August recess.
On the state level, only California and 11 other states require franchisers to register to sell franchises--much like insurance companies are required to do before they can sell coverage. Only one state, Iowa, has laws that franchisees say protect them in their dealings with franchisers.
The growing outcry by franchisees over what they see as an unfair system, and the newly receptive Congress, have helped fuel franchiser efforts at self-regulation.
Formed less than a year ago in Washington, the National Franchise Council was set up to work with the FTC in offering compliance training. Companies that violate FTC rules but do not warrant a full-fledged enforcement action may be referred, with their consent, to the council for compliance training, monitoring--if required by the FTC--and help in notifying any affected franchisees of their access to the National Franchise Mediation program.
So far, 15 major franchisers, including the parent companies of Holiday Inn and the Taco Bell, Pizza Hut and KFC chains, are funding the program, which has one staff person and has had six client companies to date. The companies do not have to disclose that they have been found in violation of FTC rules or that they were sent to the compliance program.
That effort is too little, too late, as far as many franchisees are concerned. And it does not appear to have cut the chances that franchisees will start the new millennium with their strongest legislative protection ever.
“Our legislation deals with standards of behavior after you have entered into a contractual obligation,” said Missy Branson, legislative director for Rep. Coble. “There is a lot of congressional support for something to be done.”
